November 7, 2008 / 12:39 AM / 11 years ago

GM, Ford losses worse than expected, burning cash

DETROIT (Reuters) - General Motors Corp and Ford Motor Co reported far deeper-than-expected quarterly losses on Friday and said their rate of cash burn had accelerated, as an extended slump in car sales raised questions about the future of the U.S. auto industry.

U.S. flags flutter in the wind in front of the General Motors Corp headquarters in Detroit, Michigan November 7, 2008. General Motors Corp posted a worse-than-expected $4.2 billion operating loss and burned through $6.9 billion in cash in the third quarter as the top U.S. automaker struggled with a deepening sales slump that has forced it to seek a federal bailout. REUTERS/Rebecca Cook (UNITED STATES)

Both companies said they would take aggressive steps to cut their costs even further. The two largest U.S. automakers reported third-quarter results after the world’s No. 1 automaker, Toyota Motor Corp of Japan, slashed its profit forecast for the year.

GM’s shares tumbled 13 percent and Ford’s 2.5 percent. The two collectively burned through $14.6 billion in cash in the quarter as they ran up bills related to restructuring actions and as they face a deepening global financial crisis. Chrysler LLC is also burning through cash quickly, sources said.

GM also indicated it had set aside consideration of an acquisition of smaller rival Chrysler — without mentioning the company’s name — saying it was focused on cost-cutting and other steps to free up $20 billion in liquidity through 2009.

“It offered significant synergies we felt, but the fact is those synergies tended to come in the medium and long term,” GM Chief Executive Rick Wagoner said in an interview with CNBC business television. “The issue in short-term liquidity is the state of the auto industry and so we said we’re going to put all our efforts on focusing on that issue for now.”

Chrysler declined to confirm having talked with GM.

The news came the day after the heads of Ford, Chrysler and GM — once called the Big Three, due to their dominance of the industry — as well as the head of the United Auto Workers union went to the U.S. Congress seeking $50 billion in federal aid to help them ride out the crisis.

“Today’s deeper-than-expected quarterly loss at GM accelerates the need for government help for the sector,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group, of Greenwich, Connecticut.

HEFTY LOSSES, BURNING CASH

GM, the largest U.S. automaker, reported a $4.2 billion quarterly loss and said it would cut white-collar jobs and slash next year’s capital spending budget by $2.5 billion to try to cope with a sharp sales slowdown.

Ford posted a $2.98 billion quarterly operating loss on Friday and told investors that it would look to cut salary expenses by 10 percent, a move that follows a 15 percent cut earlier this year.

Demand for cars is collapsing around the world, as fears of possibly deep recessions in the United States and Europe prompt consumers to put off big-ticket purchases and a worldwide credit crunch makes it harder for those who are interested in buying cars to get loans.

Ford said it depleted its cash by $7.7 billion — almost 30 percent — as it had to pay costs related to production cuts and make payments to Ford Credit in an effort to spur consumers to buy automobiles. GM said it went through $6.9 billion in cash.

“That cash burn was quite a bit higher than what would be a normal cash burn,” said Ford CEO Alan Mulally in an interview on CNBC, explaining that Ford ratcheted down production of its best-selling F150 pickup in the quarter to prepare for the launch of a new 2009 model.

“We’re managing our cash very carefully,” Mulally said, adding that he expects the rate of cash use to decline in the fourth quarter.

GM’s Wagoner also said his company’s cash burn would slow.

Privately owned Chrysler, which does not report financial information, is also rapidly spending its cash, according to people with knowledge of the situation.

Chrysler and its controlling shareholder, Cerberus Capital Management LP, declined comment.

“As an independent company, we will continue to explore multiple strategic alliances or partnerships ... that would aid in our return to profitability,” said Chrysler Chairman and CEO Bob Nardelli, in a statement.

Ford shares fell 5 cents, or 2.5 percent, to $1.93. They had been up prior to GM’s news. GM shares fell 64 cents to $4.16. Both trade on the New York Stock Exchange.

Both companies’ shares have tumbled dramatically this year, with Ford down 71 percent and GM down 83 percent, far deeper slides than the 43 percent fall of the global Dow Jones Automobiles & Parts Titans 30 index.

SALES STALL WORLDWIDE

In Germany both Bayerische Motoren Werke AG or BMW, the world’s largest premium carmaker, and its rival Daimler AG, maker of Mercedes, posted sharp sales declines in October, citing weakness in the United States and western Europe.

Both BMW and Daimler have reduced profit forecasts for their automobile businesses in two consecutive quarters following a sharp drop in demand.

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Porsche SE posted a 46 percent rise in pretax profit for the 12 months ended in July that easily topped analysts’ forecasts. The growth was largely the result of better-than-expected returns from hedging strategies on shares of Volkswagen AG.

Analysts said Toyota’s policy of breakneck expansion has left it especially exposed to an industry crunch brought on by the global financial crisis.

Additional reporting by Poornima Gupta and Soyoung Kim in Detroit, Doris Frankel in Chicago, Chang-Ran Kim and Taiga Uranaka in Tokyo, Christiaan Hetzner in Frankfurt and Walden Siew in New York; Writing by Scott Malone and Victoria Bryan; Editing by Gerald E. McCormick, Dave Zimmerman

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